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Bank Of England Expands QE By £75 Billion To A Total Of £275 Billion, Keeps Rate Unchanged

Tyler Durden's picture




 

As many expected, the Bank of England has followed in Bernanke's footsteps and proceeded with extra QE, 75 billion extra, or about 25 billion more than consensus - this is the first expansion in the British QE since November 5, 2009 when it did the latest  £25 billion expansion. Unfortunately, this is just the beginning: much more global QE is coming down the line as the "monetary authority" realizes it only has itself and its printers to rely on in a world rapidly reentering recession.

In summary:

  • BOE raises asset purchase target to GBP275b
  • Will keep scale of asset purchase program under review
  • Expects purchases to take 4 months to complete
  • Sees GBP1.7b auctions in each maturity sector
  • BOE keeps benchmark rate unch. at 0.5%, est. 0.5%
  • BOE says inflation likely to rise above 5% next month or so
  • Sees inflation falling back sharply in 2012
  • Sees inflation undershooting 2% target in medium term
  • BOE says margin of slack likely to be greater than expected

From the just released BOE Statement

The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion.

The pace of global expansion has slackened, especially in the United Kingdom’s main export markets. Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery.

In the United Kingdom, the path of output has been affected by a number of temporary factors, but the available indicators suggest that the underlying rate of growth has also moderated. The squeeze on households’ real incomes and the fiscal consolidation are likely to continue to weigh on domestic spending, while the strains in bank funding markets may also inhibit the availability of credit to consumers and businesses. While the stimulatory monetary stance and the present level of sterling should help to support demand, the weaker outlook for, and the increased downside risks to, output growth mean that the margin of slack in the economy is likely to be greater and more persistent than previously expected.

CPI inflation rose to 4.5% in August. The present elevated rate of inflation primarily reflects the increase in the standard rate of VAT in January and the impact of higher energy and import prices. Inflation is likely to rise to above 5% in the next month or so, boosted by already announced increases in utility prices. But measures of domestically generated inflation remain contained and inflation is likely to fall back sharply next year as the influence of the factors temporarily raising inflation diminishes and downward pressure from unemployment and spare capacity persists.

The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term. In the light of that shift in the balance of risks, and in order to keep inflation on track to meet the target over the medium term, the Committee judged that it was necessary to inject further monetary stimulus into the economy. The Committee therefore voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take four months to complete. The scale of the programme will be kept under review.

And the detailed release:

 

Following is the text of the BoE's statement issued after the meeting:

1. The MPC has decided on a further Stg 75bn of gilt purchases as part of its programme of asset purchases financed by central bank reserves. Asset Purchase Facility (APF) gilt-purchase operations will therefore resume in the week beginning 10 October 2011.

2. The range of gilts eligible for purchase will remain unchanged.

3. The Bank will, normally, conduct three auctions a week: gilts with a residual maturity of 3-10 years will be purchased on Mondays; of over 25 years on Tuesdays; and of 10-25 years on Wednesdays.

4. The Bank intends to purchase evenly across the three gilt maturity sectors. The size of auctions will initially be Stg 1.7bn for each maturity sector.

5. The Bank will confirm details of the following week's operations each Thursday at 16.00. The Bank does not currently intend to purchase gilts where the Bank holds more than 70% of the "free float", i.e. the total amount in issue minus government holdings. The Bank will, however, continue to keep the identity of gilts eligible for purchase in the APF under review.

6. The MPC expects the announced programme of asset purchases to take four months to complete. The scale of the programme will be kept under review. The Bank does not intend to hold gilt-purchase operations during the weeks beginning 19 or 26 December 2011.

7. Other than as amended by this Market Notice, previous Market Notices relating to the Bank's gilt purchases under the APF will apply. The Bank will publish an updated consolidated market notice in due course.

 

 

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Thu, 10/06/2011 - 07:13 | 1744642 Mister Ponzi
Mister Ponzi's picture

Xerox, bitchez!

Thu, 10/06/2011 - 08:18 | 1744657 gojam
gojam's picture

Global Currency War, Bitchez !!!

Quantitative Easing = Qualitative Erasing.

Thu, 10/06/2011 - 10:02 | 1745264 covert
covert's picture

atlas is shrugging

http://expose2.wordpress.com

 

Thu, 10/06/2011 - 07:16 | 1744646 jm
jm's picture

That 2nd paragraph sounded pretty desperate for a central bank.

Thu, 10/06/2011 - 07:16 | 1744648 richard in norway
richard in norway's picture

don't panic!!

Thu, 10/06/2011 - 07:17 | 1744652 tocointhephrase
tocointhephrase's picture

U.K Citizen, I got out of this 'funny money' years ago. Thank G-d! Shovel ready Bitchez!

Thu, 10/06/2011 - 07:18 | 1744653 Josephine29
Josephine29's picture

This poses quite a few implications for the UK and the Bank of England itself as was pointed out here.

Two utter fantasises expressed in support of this policy

Monetary Activism

This phrase seems to forget that we are supposed to have an independent central bank. I do not think it is independent any more as I think that Quantitative Easing crossed the rubicon with fiscal policy. If the government agrees with this as they are now implying they should scrap the Monetary Policy Committee which they have just defined as a QUANGO without use!

http://www.mindfulmoney.co.uk/wp/shaun-richards/credit-easing-in-the-uk-might-be-required-due-to-the-accelerated-withdrawal-of-a-previous-scheme/

As this article correctly pointed out whatever happened to central bank independence?

Thu, 10/06/2011 - 07:18 | 1744654 Tense INDIAN
Thu, 10/06/2011 - 07:19 | 1744656 papaswamp
papaswamp's picture

Can kicking shall commence Bitchez!

Markets will rally as more fiat gets pumped.

Thu, 10/06/2011 - 07:20 | 1744658 Snakeeyes
Snakeeyes's picture

Agreed.

It's been great for stocks! But we keep inflating and blowing out the tires.

http://confoundedinterest.wordpress.com

Thu, 10/06/2011 - 07:31 | 1744682 papaswamp
papaswamp's picture

Oh yea the final blowout will be epic!...I'll need more popcorn to watch.

Ray Dalio called it...

http://www.zerohedge.com/article/head-worlds-biggest-hedge-fund-sees-eco...

Thu, 10/06/2011 - 07:20 | 1744659 GMS guy
Thu, 10/06/2011 - 07:20 | 1744660 Ken Frost
Ken Frost's picture

Mervyn King (gov of BoE) taking very unusual step of doing TV interviews this afternoon

Thu, 10/06/2011 - 07:22 | 1744664 pacdm
pacdm's picture

Didn't work in the USA just pushed the stock market up and Commodities up.

How can the UK do this it has on money just debt

Its just a back door bailout for banks and there trading floors this just fuck the small people again 

 

Thu, 10/06/2011 - 07:29 | 1744678 Racer
Racer's picture

Yes very true, as long as the stock con goes up then the little people can get the yellow trickle down effect from it

Thu, 10/06/2011 - 07:33 | 1744687 papaswamp
papaswamp's picture

The peepee effect? 

Thu, 10/06/2011 - 07:22 | 1744665 Racer
Racer's picture

inflation is way higher than 5% for things you need.

Thu, 10/06/2011 - 07:47 | 1744717 Minoan
Minoan's picture

Right,they inflate their debt,as they did after the WW2.Correct me if i am wrong,but right after the war 1 pound was equal to 4$,or 1 silver crown equal to 1$.After 1919 they reduced the silver from .925 to .50 and in 1947 they turned to cupronickel.The ol' money (1 pound=20 shillings and a shilling=12 pence)had to do with gold-silver ratio.

Thu, 10/06/2011 - 07:57 | 1744740 tarsubil
tarsubil's picture

The PX4 is still surprisingly affordable. The Baby Desert Eagle II is also fairly cheap.

Thu, 10/06/2011 - 07:23 | 1744666 Sequitur
Sequitur's picture

Hello, Staples? Yes, we need more printer cartridges.

Thu, 10/06/2011 - 07:24 | 1744669 tocointhephrase
tocointhephrase's picture

Occupy the City of London Bitchez! 

Thu, 10/06/2011 - 07:25 | 1744670 wang (not verified)
wang's picture

it's effing wall to wall Jobs on all the fin networks, why don't they interview some Foxconn slaves instead of these asshole sycophants gushing over his genius, even Eric the Evil compared him to Michelangelo, I can't wait for the 24x7 coverage of the funeral 

 

Thu, 10/06/2011 - 07:33 | 1744688 Howard_Beale
Howard_Beale's picture

It's people like you that give the MSM their cue. The loss of Steve Jobs was as significant as the loss of a President. Do you honestly believe that they really would understand the ramifications of what is going on in the shadow banking, let alone open banking system?

If it upsets you so much, turn off your TV. I have watched no coverage of it and still feel his death was a significant loss.But then, I've only been here over 2 years--so I may not have a clue.

Thu, 10/06/2011 - 07:45 | 1744713 wang (not verified)
wang's picture

Howard you carry great cred (thanks for reminding us) I am sorry for your loss but rest assured his legacy will live on not only as the guy who energized the Chinese slave economy but as the person who brought portable tracking technology to the masses.  

Thu, 10/06/2011 - 07:27 | 1744675 edmondantes
edmondantes's picture

With stooge Adam Posen (installed by immensely stupid G Brown) emanating from the laughably titled Institute for International Economics (funded by the CIA) and Ben Broadbent (a running dog for the immensely crooked vampire squid) populating the MPC why should anyone be surprised?

Next up monthly increases in QE... until printing is in the trillions not the hundreds of billions

Thu, 10/06/2011 - 07:32 | 1744683 Hank Reardon
Hank Reardon's picture

Er....didn;t we try this already & it didn't work?

In the UK

In the US

In Zimbabwe

In Argentina

In Russia

In Germany

In Austria

In Hungary...

anon...

 

Savers, pensioners, poor all screwed. UK population destined for poverty with GBP becoming toilet paper. Banksters keep their discounts. Govts get to continue spending with low interest rates..for now.

FFS - WAKE UP!

Morphing my paper into hard AU & AG whenever I can.

Good lucky Blighty.

 

 

Thu, 10/06/2011 - 07:38 | 1744702 ArkansasAngie
ArkansasAngie's picture

The UK is simply getting in run of this tidal wave.  By the time other countries get into this race, the printing press will 24/7

How much money does the world really need to create?  This could be a big number.  For grins lets just pick $20 trillion.  Over what time will this need to happen ... hint -- banks need their capital now.  Let's say 2 years.  What is the implied inflation rate?

The problem is that deflation is always the end result of inflation.  The way to avoid deflations is by controlling inflation. 

 

Thu, 10/06/2011 - 07:40 | 1744704 Hank Reardon
Hank Reardon's picture

Good for a laugh:

 

Quantitative Easing: How it Works - watch the Bank's short film on QE

http://t.co/lwo9rrY1

Thu, 10/06/2011 - 07:41 | 1744708 pmcgoohan
pmcgoohan's picture

Escalating inflation and decimated savings aren't going to help the UK spend its way out of recession.

Desperate attempt to prevent the housing bubble from popping to avert a collective national nervous breakdown.

It won't work...

Thu, 10/06/2011 - 08:04 | 1744755 yabs
yabs's picture

on their website they say its not money printin g

can som one tell me what it is then?

Thu, 10/06/2011 - 08:34 | 1744833 BigInJapan
BigInJapan's picture

The UK is my biggest export market. Exporting from Japan and converting GBP back to JPY used to be the best game going. Shit, I can remember when it was 250JPY to the Pound - looking at 117JPY now. Days of milk and honey.

For a long time now, it's been on the slide, and in the past three months, cracks have begun to develop in the characters of some of my customers. I've chocked it up to stress, but it seems the UK is rapidly going to hell in a handbasket.

If these assholes in Tokyo are going to really print, I wish they'd hurry up and do it.

Short-term; we're all fooked!

 

Thu, 10/06/2011 - 09:02 | 1744951 YHC-FTSE
YHC-FTSE's picture

Deeply disappointed in Mervyn. At a guess, I'd say this was a Cameron/Osborne political move to please their masters in Washington. 

It didn't work in Japan, it didn't work in the US, and it certainly didn't work here. So, let try it again shall we? What's so frightening about deflation anyway? It's better than hyperinflation. All that money wasted on the casino markets so we can see a bit of green on the indexes for a few weeks. 

 

It'd be nice to transfer our economy to a parity model that does not depend on growth, boom, and bust cycles. But the current situation dictates that we need growth to reduce our deficit. So, why not dump all the bonds we hold on other countries to someone who wants to play the world domination game, like America, Russia, China, or some other mentally incompetent megalomaniac, reduce our deficit to zero, and look after our own interests for a change? Become a producer-nation of world class goods and services, instead of a creditor-nation leeching off the debts of others. Mervyn, Cameron, Osborne! Do you hear me? (They're obviously deaf). 

Thu, 10/06/2011 - 09:10 | 1744993 msmith
msmith's picture
The ES could pullback to fib support before pushing higher.  Also USDCAD pushing higher before in resumes a push lower.  http://bit.ly/pcrsPQ
Thu, 10/06/2011 - 09:26 | 1745062 cranky-old-geezer
cranky-old-geezer's picture

 

 

QE is the only way to keep insolvent national governments going now, and most national governments around the world are insolvent.

They grew too large for the tax base. They spend far more than they collect in taxes.

That's it in a nutshell. A simple explanation why national governments are insolvent.

The only way to make up the shortfall is borrow money. That's it. The only option.

QE is central banks printing money and loaning it to national governments. Plain and simple.

In America the Fed is prohibited from buying US government debt directly. So the Fed buys it through major banks who buy it from the government, allowing those banks to make a nice profit on the transaction.

But printing money to buy government debt expands the money supply. During QE2 the Fed was printing around $150 billion per month to buy government debt, expanding the money supply $150 billion per month.

During QE2 the Fed was also printing money and buying (worthless) securities from those same major banks. But that money didn't go into the money supply. It went into bank reserve accounts at the Fed, not considered part of the money supply because those funds aren't considered to be in circulation.

While Bernanke was publicly saying these major banks should start lending money again to get the economy going, privately he was telling them don't lend any money. If they did start lending again it would increase the money supply way more than $150 billion per month and create hyperinflation.

So Bernanke was choking off business and consumer lending so the government could borrow $150 billion per month. Yes, Bernanke was quite willing to watch the economy continue collapsing so the government could keep borrowing and spending.

QE2 has ended. But the government still must borrow large amounts of money each month to continue operating. Nobody else is stepping up to loan the money, so the Fed must continue printing $150 billion per month and loaning it to the government somehow.

Another possibility is give investors a reason to pull cash out of the stock market and buy government debt with it. Ending QE2 signals to investors no more Fed support for the stock market. So the stock market starts falling, causing investors to sell and put that money in Treasuries where they feel it will be safe, giving Bernanke what he wants, large inflows of cash to buy government debt. Bottom line, Bernanke is sacrificing the stock market so the government can keep borrowing $150 billion per month.

How long can this go on? How long can the stock market drop and push money into Treasuries?

Will Bernanke let the Dow fall to 6000? 5000? 4000? Lower?

Why doesn't the government just cut back? Scale back to living on tax receipts? Stop borrowing $150 billion per month?

To do that, the government would have to cut back 40%. Slash all federal government spending 40%.

Who in congress has the guts to do that? Most of congress would have to support it to get enough votes to pass such legislation. Likely 2/3, enough to override a presidential veto, since Obama would probably veto a 40% across the board spending cut.

Of course there's no way congress will cut government spending 40%. They won't even cut spending 1%.

So we're down to two possibilities: (a) the stock market continues falling, or (b) QE3, QE4, QE5, etc, out into the future, no end.

Bernanke might let the stock market fall all the way down, say 1000, then start QE3, QE4, QE5, etc.

Once Quantitative Easing starts back up, the money supply starts expanding again, creating more inflation, weakening the US dollar, pushing prices higher, etc.

I guess it just depends on how far down Bernanke will let the stock market fall before starting up Quantitative Easing again ...and finish destorying the US dollar.

Thu, 10/06/2011 - 12:16 | 1746100 YHC-FTSE
YHC-FTSE's picture

+1 Option b) for the foreseeable future I'm afraid. How many times do we need to repeat it on ZH? Nothing has changed. The same fuckers in power are still fucking us over. 

Thu, 10/06/2011 - 17:44 | 1747628 supermaxedout
supermaxedout's picture

Thats how it is. Simple and true.

Do you think hyperinflation can be avoided or will the floodgates be open one day? 

Thu, 10/06/2011 - 09:26 | 1745064 yabs
yabs's picture

criminals

I had planned to retire on my income from my rental properties in the UK in South east Asia but now I cannot due to a weak pound

where is my f*cking bailout?

Thu, 10/06/2011 - 13:38 | 1746495 theprofromdover
theprofromdover's picture

The Bank of England is always wrong, and even when they give a wide range of predictions to cover their collective ass, the reality falls outside of their extremes.

Read their past 4 inflation reports. Fail, fail, mulitiple fail.

They draw pretty graphs saying things like inflation in 2 years might be anywhere between +7% and -2% (and don't assume +2.5% as median)

Can't any of them be sacked?

Fri, 10/07/2011 - 04:26 | 1748873 EZYJET PILOT
EZYJET PILOT's picture

Are the BoE creating money out of thin air also?

 

Wed, 10/12/2011 - 10:20 | 1765537 karmete
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